Goldman Sachs Revises Federal Reserve Rate Forecast: Three Cuts Anticipated in 2024

📝 SUMMARY: In a significant revision of its monetary policy outlook, Goldman Sachs Group Inc. ($GS) has adjusted its forecast concerning the Federal Reserve's actions on interest rates for the coming year. Initially anticipating four quarter-point rate cuts, the economists at Goldman Sachs, under the leadership of Jan Hatzius, now foresee only three such reductions taking place. This adjustment brings Goldman's projections in harmony with the median forecast made by Federal Reserve policymakers in December, indicating a more cautious approach to monetary easing than previously thought.

The revision in the forecast is primarily attributed to an expected slightly higher path for inflation, which suggests that economic conditions might not be as conducive to aggressive rate cuts as earlier predicted. Despite the pullback in the number of expected rate cuts for the current year, Goldman Sachs maintains its long-term forecast. It continues to anticipate the first of these rate reductions to occur in June, followed by four more cuts in 2025 and a concluding cut in 2026, ultimately leaving their projection for the terminal rate untouched at a range of 3.25% to 3.5%.

This recalibration of expectations underscores the complex balancing act faced by the Federal Reserve as it navigates between fostering economic growth and controlling inflation. The slight adjustment in the anticipated inflation trajectory signals a more nuanced view of the economic landscape, taking into account both domestic and international factors that could influence price levels and economic activity.

Goldman Sachs' updated forecast reflects a broader consensus among economists that the path to monetary easing will be more gradual than expected, influenced by persistent inflationary pressures. This change is a reminder of the unpredictability inherent in economic forecasting and the importance of flexibility in monetary policy formulation. As the year progresses, all eyes will be on the Federal Reserve to see how it responds to evolving economic indicators and the guidance provided by leading economists like those at Goldman Sachs.

🔍 SOURCE: https://www.bloomberg.com/news/articles/2024-03-18/goldman-sachs-changes-2024-fed-forecast-to-three-cuts-from-four?srnd=markets-vp